Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Note 4 – Stock-Based Compensation

Under the Company’s stock-based compensation plan, the 2005 Stock Incentive Plan (the “2005 Plan”), equity awards may be granted to officers, directors, employees, consultants and advisors to the Company and any present or future subsidiary. The 2005 Plan, approved in May 2005 and amended in June 2011 by the stockholders of the Company, currently authorizes the grant of equity awards for up to 14,312,192 shares of common stock, which included, at the time of approval of the 2005 Plan, a maximum 5,746,468 shares of common stock subject to stock options outstanding under the Company’s 1995 Stock Option Plan (the “1995 Plan”) that may revert to and become issuable under the 2005 Plan if such options should expire or otherwise terminate unexercised. The term of the Company’s 1995 Plan has expired. Outstanding stock options remain in existence in accordance with their terms and no new awards will be made under the 1995 Plan.

The Company recorded stock-based compensation expense in the statements of operations as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Research and development	$	150	$	77	$	273	$	8
General and administrative		553		348		862		501
Total stock-based compensation expenses	$	703	$	425	$	1,135	$	509

During the three months ended March 31, 2010, the Company recorded a stock-based compensation benefit of ($0.1) million due to the reversal of previously recognized expense for unvested stock options that were cancelled due to employees leaving the Company.

Stock Options Awards

The following is a summary of option activity under the 2005 Plan and the 1995 Plan for the six months ended June 30, 2011:

	2005 Stock Incentive Plan					1995 Stock Option Plan
	Stock Options			Weighted- Average Exercise Price		Stock Options			Weighted- Average Exercise Price
Outstanding at January 1, 2011		5,214,794		$	2.34		579,850		$	4.97
Granted		2,857,400		$	2.26		—		$	—
Exercised		(84,899	)	$	1.35		—		$	—
Canceled		(571,680	)	$	2.37		(55,200	)	$	8.87
Outstanding at June 30, 2011		7,415,615		$	2.32		524,650		$	4.58
Shares exercisable at June 30, 2011		3,461,147		$	2.28		524,650		$	4.58
Shares available for grant at June 30, 2011		3,422,135

The fair value of stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended June 30,		Six Months Ended June 30,
	2011	2010	2011	2010
Weighted-average fair value of stock options granted	$1.09	$1.68	$1.23	$1.64
Risk-free interest rate	0.83%-1.91%	1.47%-2.33%	0.83%-1.91%	1.46%-2.89%
Dividend yield	0%	0%	0%	0%
Volatility	73.28%-80.02%	98.78%-108.02%	73.28%-80.48%	98.78%-108.02%
Expected life (in years)	3.26-4.47	3.06-4.47	3.26-4.47	3.06-6.26
Expected forfeiture rate	0-23.15%	21.07%	0-23.15%	21.07%

The aggregate intrinsic value and weighted-average remaining contractual term of stock options outstanding as of June 30, 2011 was approximately $1.4 million and 7.2years, respectively. The aggregate intrinsic value and weighted-average remaining contractual term of stock options exercisable as of June 30, 2011 was approximately $1.2million and 5.7 years, respectively. The aggregate intrinsic value represents the total intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2011. This amount is subject to change based on changes to the fair value of the Company’s common stock. The aggregate intrinsic value of options exercised for the six months ended June 30, 2011 and 2010 was $0.1 million and $0.3 million, respectively.

Restricted Stock Awards

Under the 2005 Plan, the Company has granted restricted stock awards subject to certain performance-based and time-based vesting conditions which, if not met, would result in forfeiture of the shares and reversal of any previously recognized related stock-based compensation expense.

The following is a summary of restricted stock awards activity for the six months ended June 30, 2011:

	Number of Shares			Per Share Weighted- Average Grant-Date Fair Value
Outstanding at January 1, 2011		56,666		$	2.47
Restricted stock granted		—		$	—
Restricted stock vested		(50,000	)	$	2.11
Restricted stock forfeited		—		$	—
Outstanding at June 30, 2011		6,666		$	5.21

As of June 30, 2011, there was approximately $3.5million of total unrecognized compensation expense (net of estimated forfeitures) related to unvested options and restricted stock awards. This unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.5years. This estimate does not include the impact of other possible stock-based awards that may be made during future periods.